simple... and I will tell you what works for me might not work for you.. I trade primarily on my IRA account, very little done outside of it.. I added size as I grew my account... I tracked what the average size for the market's I trade is, and I stopped @ 50% of that size, it also depends on liquidity within that market or stock... I focus on spreads on the beans complex.. If I was trading equities, I would do the same thing depending on the strategy... risk a % of my account that I am comfortable with, start out with 100 shares, and grow from there... every certain % I would add another 100 shares until I get to a size that is easy to absorb by the market without any scary moments... like 2K shares on something trading 5MM+ shares daily lets say... I want a fill in a few seconds or less if I go at market... Above all things, take a percentage of profits out of play... like 25-50%, and invest on something else and keep some of it in cash as well... don't risk all the gains whatever you do... pay yourself first... then re-invest... my 2 cents, for whatever they are worth...
Had some hesitation posting this, but I guess if it motivates 1 or 2, why not. I truly adore this profession, and want other truly motivated persons to give it a fair shot. A superfluous wave of negative attitude has in some ways taken over this site. Perhaps small anecdotes like this will help off-set it. I wrote this on another finance forum (NP) I frequent, will just copy and paste here with some amendments for privacy/updates... Perhaps my own trading timeline going from part-time retail to career professional will be slightly insightful (will keep it abbreviated): I'm 31-35 yrs old. After wrapping up grad school (mech engineering @ top 5 univ, early 2000's), worked in respective field for ~3yrs. Had great interest in trading dating back to late undergrad yrs. Made a difficult decision to devote ~60% of 1st year salary to a capital trading block. Keep in mind I was a single bachelor, 23-25, no dependents, no mortgage, no significant overhead costs, ~$750 rent, car paid off, no school loans (tx to acad scholarship and generous parents). It was approximately $2000/month in living expenses year one. For ~1.5 of the first 2 yrs @ engineering position, almost every Mon-Thurs evening of work week I devoted 2-4hrs to educating myself & developing position trade ideas. Endless time wasted running into dead-ends, as I was beyond naive and lacked experience to know which way to run. I even spent time chasing momentum pump & dump plays at Raging Bull/Investors Hub. It required serious sacrifice to personal life. Around end of year 1, actively started to swing trade an initial ~$30k trading block magnified by 2x margin utilizing volatile US equity small & mid cap issues. Was able to monitor positions 3-5x times per day when @ work. From that initial stage of active trading, over the next 1.5yrs was able to increase the initial block by ~4.5x net. Brunt of return came from three stand-out stocks, including one OTCBB that went from $1.50 to $12. Never had more than 6 stocks in portfolio at one given time. Technical/fundamental mixed approach. With such a result, was able to convince and secure a $100k interest free loan from my father. The agreement entitled him to silently share a joint account with me to monitor my risk/positions, with the right he could pull his $100k at any point. My equity was first to take a drawdown hit. Over the next 10 months, increased the net capital yet another ~30% after a brief 10% draw-down. Three months before submitting my resignation I finally became comfortable and convinced to go full-time. Another stipulation of the loan was I had to have a full-time "secure" salary, so 3-4 months after my resignation I was obliged to return the initial loan amount. With almost $200k free & clear trading capital, 1.5 years of "bare-bones" living expenses tucked away, and a healthy initial dose of trading experience, I began my journey. ~Eight years later, I'm now a small independent futures trading business that I'm confident would rank in top 10% of independent trader CME exchange members (capital size). Consider myself very fortunate, and could calmly retire tomorrow. Outside a relatively small block I manage for my wife and parents, trade zero opm. Contract out programming development work when needed (ie freelancer, fcm recommended parties, etc) and lease an IMM @ CME from time to time (depends on what type of strategies I plan to run, thus use 3 month lease terms). I have almost exclusively traded futures since mid-2006. RIMM, AAPL, and some dry bulk shippers were the only equities I touched through 2007. ES 90% of volume, 10yr/6E a very distant 2 & 3. I strictly trade the large futures contracts due to significant liquidity, leverage, most favorable tax structure, cost @ higher volume, market access (all in that order of importance). You must not be afraid of leverage. Everyone talks about over-levering (yes, beyond critical), but not many discuss the silent killer after you have some experience under your belt: under-leverage. I'm a clean cut, relatively nerdy & passive persona, but one thing you really need in this business is brass balls & stamina to get through the daily grind. You hear it said in passing, it is not an exaggeration. If you don't have it inherently, be patient as it takes some time to build up. I'm not going to give an exact example, but say I had $500k in capital in 2007. In that era I would have taken $100k of that block, and swore it off as gone. Heavily levered it up (ex, $4k-5k capital/ES contract or ~2-2.25% fixed fraction). The remaining $400k used for far less risk position sizing. That early, calculated aggressiveness while I was trading well really helped moved the arrow forward. Now I use a very conservative fixed-fraction position sizing of around 0.2% per strategy as I'm esp keen on protection. Since late 2006, I'm strictly intra-day for 95+% of my volume. I deploy 5-6 active strategies for ES, roughly half momentum, half mean-revert. Each relatively small/conservative on their own, but when summed out end of month, very strong. I strongly discourage relying on 1-2 "bread n butter" methods. Fell into this trap plenty of times through-out my journey. Current winning ES trades average in the 8-10 tick range in present volatility. 2008/2009 was an incredibly large gift as the volatility catapulted my accounts to a different realm. So, ultimately there is no denying it: I had some good blind luck at the onset, fortunate circumstances not available to everyone, and timing. Another tremendous mental backstop is my wife is a clinical research engineer (manager) at a large medical device company. If I were to have a bad year, she could support us without blinking an eye. Moral of this story: give yourself a fair shot by going in with a decent size capital block, hold reasonable expectations, and work your ass off. Going at it full-time with only $25k is reckless imo. Swinging that size block while you work full-time is the smart decision. I would wager too many think they can get this off the ground in a few years. Give yourself 3-5yrs to build the full-time block. If you are good, once you get to that 150-250k range via your after-work efforts, that first 1MM can come very quickly once full-time. Trust me, compounding/exponential growth is a sight to see, no rush to get there. Best of luck.
Thanks for sharing your story. It is very motivational and encourages me to just keep going on with my part time trading but maybe become a little bit more aggressive. But also to give it the time it takes.
Thanks so far for all your comments. Maybe a little bit of background helps to put my situation into a context. I'm very comfortable to trade part time. I have a job that pays the bills and have no pressure to earn a living through trading. I trade equities based on daily charts with the intention of holding winners for a couple of weeks and maybe longer when they perform strong. I'm not new to trading and already made my fair share of rookie mistakes. What I'm interested in is after you reached the point where you have build some trust in your abilities, settled on a method and the excitement of the early days is gone and you know you need a bigger account to make it really worthwhile, how did you push forward? I'm under the assumption that you should be in the market to become rich not just make a living. But the fact is I know nobody in my social circle who made serious money trading part time. So I really have no idea if it can be done and how long it may take. Would like to hear more of your stories and comments.
I'm kind of reluctantly posting this because I fear motivating the wrong people. Just because some people have success with trading doesn't mean that it's easy, or even attainable at all, for the majority. Of course there are many reasons for that. Luck. Timing. Personality. Patience. Fallback plan. Spousal support. Intelligence. It's a long list with many factors not very controllable. This field is full of smart people. Most people overestimate their intelligence. I certainly did - but then had the fortune to work with a group of russian ex-physics PhD quants in a very technical environment early in my career. I found that if I took a day to really think about it I could get to the point where I could understand the question that they were trying to solve. It gave me a new perspective. I'm not saying that you have to be that level of smart or that those people would be good traders. My point is, that they are out there doing .... stuff... and at some level they form part of the competition. Many people who are not smart enough never ask enough (or the correct) questions. With that caveat, I'll tell a piece of my story. While working for a modest sized hedge fund (about $5B) I met a coworker who was a serial entrepreneur. We became friends and would often take walks together. He taught me a lot about how to view income as 'stages' and how you have to do different things to get to the next stage. Another thing that always stuck with me is that he would say "Garachen, if you live in America and your goal is to make money and you haven't hit $1M by the age of 25 then you are not really trying." He'd then say. "Anyone in America can make $1M. It's trivial. $10M is harder. $100M is quite hard and $1B takes a lot of luck." At the time, this frustrated me. I was 25 and had only saved about $150K. Thought I was doing at least reasonably well - but apparently I wasn't "really trying". He'd motivate me with stories of how he made his first Million, then the next ten, fifty and so on. There's a lot of good story here that I'm skipping. Suffice it to say, he motivated me to quit my job at the hedge fund and try a different approach. My first year of manual trading I took that $150K to $50K (broker theft) and on to 800K by the end of the year. I traded almost exclusively illiquid futures contracts at a time when there was absolutely no automation on those contracts. It was a golden era. Still, it's not too different from what I'd expect today. I've generally found that when I hire a new person with no trading experience I should expect them to make about $1K/day using max 25K margin after about 3 months of floundering. Of course everyone can't pull this off. During the interview process I pretty heavily screen for personality traits that I think are important for trading so I end up with people who can resonate with my particular, very risk averse, style. One last thing. Before that friend I'd met, I'd always heard that "the first million is hard, the next 10 are easy". My friend was telling me the opposite which is closer to my experience. I have found the process of reaching different income levels to be much closer to the 'stages' my friend described and that I've had to do material different things to get to the next stage. It's important while you are at one stage to be able to visualize and lay the groundwork for the next.
The figure you are quoting is using manual trading? 21 trading days a month means 21k return on 25k invesment for 84% monthly return? 20-30% month manually is maybe understandable but 84% monthly?? Sounds too hard to believe unless you are quoting this figure for hft strategies. EDIT: Btw, if you took personally 50k to 800k in a year, thats fantastic record. But to say that you can hire people who can repeat this performance sounds really unbelievable. Why will anyone work for you if they can take their 50k to 800k? If this is true for your hires also, how do you retain them. Very surprised
perhaps you are looking at it at the wrong angle... $25K margin, depending on the contract and intraday requirements, amounts to much greater notional value... for example... I will use one of my equities strategies that started performing again that I am looking to deploy soon enough... it risks 10c to make 20-25c and it, with $2500, can achieve ~30% on capital, but when looking at how much notional is around 2% return... if instead I deployed the same strategy with $250K I would achieve 3% return on capital... you get the picture... to me, I personally prefer to measure rate of return on the notional amount... garachen is clearly mentioning the margin capital required, which is why people go nuts over a rate of return that seems unsustainable and crazy, when in fact it is not..
Manual trading. My low frequency auto trading and HFT are counted separately. I didn't even bother posting what people should make after a year or two because everyone and their Grandma would be calling BS on me and to mount a truly adequate defence would require me to give more details about specific contracts than I'm comfortable with. There's a lot of less- liquid products out there. Also, there are lots of spread products that are not available through the traditional broker setup (IB) but you can see them when you use TT or write direct. Retention. I've never had anyone quit or get fired. I can think of some reasons. You can also tell during the interview. A surprising number of people say straight up that their long term plan is to start their own trading company/hedge fund. They think it conveys ambition. There are some advantages to consolidating volume/market access. Also a few other reasons. We like to take vacations together. Used to be we'd take everyone (wife, kids). It's a pretty pleasant work environment.